Student Debt’s Long Drag on Net Worth, But ‘Do Not Despair’

The heavy burden of student debt not only makes it more difficult for young adults to gain financial traction in other areas of their lives, but according to new research from Pew Research Center, economic gaps between those who borrow for college and those who don’t seem to be widening.

“If you’re college educated and have student debt, you’re behind the curve in building a nest egg,” explains Pew Senior Economist Richard Fry. “But do not despair because it’s also true that young, college-educated households also have a much higher income than those who do not have a college degree.”

Still, the data shows a stark contrast in net worth between those in debt and those who are not: The median net worth of a young household, characterized as a home headed by an adult younger than 40, with student debt is $8,700. The median net worth of a young household with no student debt was $64,700, seven times greater than those with student debt.

“Young people are having a different experience than the previous generation since education is so much more expensive now....We don’t know how this is going to impact their financial security in the long term, but they are certainly struggling right from the starting block.”

- Heather Jarvis, student loan expert

Just as striking, a person without a college degree and no student debt has a net worth of an estimated $10,900, about $2,000 more than a college graduate with debt. However, student loan expert Heather Jarvis emphasizes that this does not take into account the significantly higher incomes of those with a degree beyond high school. The typical household income of a college-educated student is $57,941, nearly twice of that of households whose heads do not have a bachelor’s degree. Their estimated income is roughly $32,528, Pew reports.

“College clearly provides better income opportunities…. It just takes those with student debt much longer to reap the rewards of their higher income because of their loans,” says Jarvis. “But even with those who have taken out student debt, most of it is a manageable amount.”

According to Pew, about 37% of U.S. households headed by an adult younger than 40 currently have an average of $13,000 in outstanding student debt, the highest share on record.

“Young people are having a different experience than the previous generation since education is so much more expensive now,” says Jarvis. “We don’t know how this is going to impact their financial security in the long term, but they are certainly struggling right from the starting block.”